There are few financing options from the banking sector that provide personal loans when you need fast emergency funds. However, certain types of secured loans such as gold loans
are emerging as an alternative to personal loans with the benefit of low documentation.
Now, these both loans have advantages and disadvantages.
Here is a quick look at the pros and cons of these two types of loans if you are wondering which one of them will be right for you.
Gold Loan: These loans are also known as secured loans and you are only eligible to apply for a gold loan if you own physical gold in the form of jewelry. Read the following features of gold loans before you decide whether you want to take it or not.
Pros:
Easy and Swift Processing: Gold loan processing is fast and easy when compared to any other loan. Banks or NBFCs that lend instead of gold require only basic documents.
No Credit History Required: With gold loans, banks accept you, whether you have a low credit score. You would not have to know your CIBIL score or to tell about other loans. It is also a nice opportunity to improve your credit history.
Flexible Repayment: The best thing about a gold loan that they offer you many options for repayment which are not offered with other types of loans. Three of the most common repayments options:
You can choose to pay the loan amount by regular EMIs
You can pay the interest during the loan tenure and pay off the rest at the end of the tenure.
You can pay the interest and loan amount at the end of the time with no payments before that.
Cons:
High Margin: Banks offer you a loan up to 70% to 75% of the value of your gold. This means the remaining 25% value goes towards the bank’s margin and cannot be monetized.
Loss of Asset: It is a secured loan in which your asset is at risk by the lender, So if you are not able to repay the gold loan on time.
Personal Loan: These are unsecured loans that are ideal for short-term financial obligations. These loans have been a popular option among those who need urgent finances. especially when one in need of emergencies and unplanned expenses. One can choose from HDFC Personal Loan with the best service and with the low documentation process it became people’s favorite lender.
Pros:
No Collateral: Borrowers do not have to keep any type of asset as security with the bank. This feature makes it the only choice for people over other financing options.
Versatility: An applicant can opt for personal loans for various reasons such as a wedding, home renovation, down payment on a new house, or a family vacation overseas.
Minimal Paperwork: Personal loans do not involve much paperwork. you just have to provide basic KYC information documents and proof of income as required by the bank, there is a good chance that your application will be approved.
Cons:
Credit History and Eligibility Criteria: Before giving any type of personal loan, banks conduct a thorough inquiry about the credit history of the borrower. The personal loan eligibility criteria also have various complexities that do not allow everyone to opt for a personal loan.
High-Interest Rates: The interest rates on personal loans are usually high as these unsecured loans are considered riskier by the banks. Thus, by the time you finish paying off the loan, there is a possibility of significant interest outgo.
Prepayment/Foreclosure Penalties: Most banks do not allow prepayments on personal loans till a specific period such as 1 year has elapsed. Lenders can charge high prepayment fees as a penalty if the individual can pay off the loan before the completion of the loan tenure.
In conclusion, it is easy to say that both gold loans and personal loans have unique features that make them suitable for specific situations depending upon your requirement.
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